The Effect of Value Estimation Errors on Portfolio Growth Rates

Posted: 22 May 2019

See all articles by Robert Ferguson

Robert Ferguson

AnswersToGo

Dean Leistikow

Fordham University - Finance Area

Joel Rentzler

City University of New York (CUNY) - Baruch College

Susana Yu

Iona College

Date Written: November 8, 2008

Abstract

This paper analyzes the impact of value estimation errors on portfolios' growth rates and relative growth rates (i.e. long-term returns and long-term relative returns) for several portfolio weighting methods. The portfolio weighting methods include capitalization weights, estimation error neutral weights, estimation error independent weights, Funda-mental weights, and Diversity weights. The paper provides theoretical support, in the context of estimation error, for the empirical findings that many non-capitalization weighted portfolios beat the market's capitalization weights. It also provides a theory for the size effect.

Keywords: portfolio growth rate, estimation error

JEL Classification: G11

Suggested Citation

Ferguson, Robert and Leistikow, Dean and Rentzler, Joel and Yu, Susana, The Effect of Value Estimation Errors on Portfolio Growth Rates (November 8, 2008). Journal of Investing, 2009. Available at SSRN: https://ssrn.com/abstract=1131672

Robert Ferguson (Contact Author)

AnswersToGo ( email )

6815 Edgewater Drve
Apt 208
Coral Gables, FL FL 33133
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Dean Leistikow

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
United States

Joel Rentzler

City University of New York (CUNY) - Baruch College ( email )

17 Lexington Avenue
New York, NY 10010
United States

Susana Yu

Iona College ( email )

715 North Avenue
New Rochelle, NY 10801
United States

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